So, I see that you’ve dug yourself into a debt hole. You want to get out but you don’t know how?
Well, the first thing that you should do is… STOP DIGGING.
Debt is that un-sexy topic that no one wants to talk about or wants to admit that it is their problem.
In my own experience, debt is like a double edged sword; use it correctly and it will work in your favor, use it carelessly and it will eat you alive.
Having a sh*tload of consumer debts is an issue that many millennial face today.
People don’t think about how being stuck in a hole filled with consumer debts will force you to keep working till you pay it off.
Now, is that really living when your YOLO lifestyle is causing you to live like a work slave?
Sounds harsh, I know. 😕
But if you’re reading this, you’re probably in some kind of financial turmoil. You might have dug yourself into a debt hole, but it’s never too late to get yourself out of it. 🙂
Change the way you think and you can change the way you spend.
Here are a few tips to get you started! Let’s dig out, shall we? 😀
1. Accepting Your Debts
When people are in debt, it’s hard for them to see the light while standing at the bottom of their hole.
No matter how you got into debt, it’s normal if you feel guilty and start blaming yourself for being in this situation.
A few years ago, a close friend asked me to help her organize her finances. For a long time, she thought that her debt wasn’t big enough to be considered as “real” debt.
But… How could she have been so sure if she never looked at her debts closely?
Similar to most people who are in debt, she used her credit cards to pay for almost everything. When the bills came she would only pay the minimum payments or sometimes a bit more.
Then, the cycle would start all over again.
On top of that, her chequing account had a balance of $0, which meant that she was actually using overdraft credit to pay her bills! Needless to say, she had a 5 figure amount of debt that was growing right in front of her.
I’m happy to say that today she is debt-free and about to start a whole new chapter in her life. 😀
So what was the most important thing that she did? Her willingness to put her ego aside and accept her debts.
Accepting your debt is one of the most important parts of this growing pain. You can only begin moving forward, once you have accepted the past.
Instead of wasting time and beating yourself up, why not treat this as an excellent opportunity for personal growth? 🙂
2. Know Everything About Your Debts
You know that feeling that you get when you meet someone new? In order for you to keep up with that fruitful conversation, you start making small talk so you can get to know them better?
Well, that’s something you’ll have to do with each one of your debts. 🙂
It’s understandable if you don’t want to discover something that you’re not ready for.
But, just think of it as going to a speed dating event where you have to ask a lot of questions with all your dates or “debts”. 😉
Instead of the usual boring questions like, “What do you do for work?” or “What do you do for fun?”
Replace it with even more exciting questions like:
- What’s your interest… rate?
- What is the outstanding balance on it?
- Can you find a way to lower your interest rate?
- What is the annual fee?
- Are there other no annual fee credit card options available?
…and so on.
Once you get all the basic answers that you need from each debt, rank them from the debt that you should pay off first to the debt you should pay off last.
Everyone prioritizes their debt a little differently than others. Getting to know your debts and laying everything out in the open is never easy. I’m not going to sugarcoat it and tell you that it’s all going to be fun and games.
But once you do, you’ll be able to see the bigger picture more clearly.
3. Create A Budget + Debt Repayment Plan
Alright! Now that you got the details down on all your debts, it’s time for you to come up with a game plan to pay it all down.
Be realistic with your budget + debt repayment plan. Keep in mind that you’ll need enough money for your living expenses too.
Create your own plan or consult a professional to help you out if you’re unsure of how to approach this.
Here is an example of a list of debts that someone might have. Ranking from top (pay off first) to bottom (pay off last).
- Overdraft debt – $5500 @ 21% per annum
- Credit Card debt – $4000 @ 19.99% per annum
- Student Loan – $8000 @ 3.5% per annum
- Bank of Mom & Dad – $1500 @ 0.00% per annum
- Car Loan – $14000 @ 0.00% per annum (fixed monthly payment)
Here is an example budget plan that this person might use to pay down their debt. This is for reference only.
Example Monthly Budget Plan
- Rent – $800
- Car payment (Debt #5) – $500
- Overdraft Debt Repayment (Debt #1) – $400
- Car Insurance – $100
- Cellphone/Internet – $100
- Grocery – $200
- Miscellaneous – $100
- Emergency Fund/Savings – $100
- Pay all loan’s minimum payment – $200 (whatever is left pay off Debt #1)
Once Debt #1 is paid off, target to pay off Debt #2 and repeat for the rest. The more expenses you can cut out each month, the faster it will be for you to pay off your debts.
You might be wondering why we’re setting aside $100 for emergency fund/savings, instead of putting it towards a debt.
That is because while you’re paying down your debt, you’re also trying to develop a new habit. You want to start saving money for a rainy day because you never know what could happen in the future.
4. Put All Extra Cash Into Your Debts
If you want to speed up your debt repayment process, then start putting as much cash as you can into it. 😀 It is as simple as that!
Few ways to get some extra cash:
- Sell your unwanted items or have a garage sale
- Take additional shifts at work or take a few side jobs
- Find your long lost piggy bank
Just find any way possible to pay off your debts from all sources.
For me, I find that selling my unused items is the fastest. It is actually a lot easier than you think. I post my items on Craigslist since it’s fast and doesn’t charge me any selling fees like eBay does.
Just make sure when you get a “deal” going, you show up to the exchange of the goods with a beefy bodyguard. Of course, always meet in a public place!
5. Make Your Credit Cards Disappear
For those of you that aren’t naturally disciplined and can’t seem to avoid using credit cards to pay for things; fear no more, because we’re going to “David Blaine” those shiny cards. 😉
Here are some magical ways to hide your credit cards:
- Freeze it in a plastic container full of water
- Dig a hole in your backyard or a pot of plant and hide it at the very bottom
- Lock it in your safety deposit box (if you have one)
- Give it to your parents or trusting family member to hold it for you
The idea here is to make your credit cards unreachable and difficult to get to right away. What you’re trying to do here is break your usual spending pattern, so that you can spend less while staying within your budget plan.
You’ll be amazed at how little you spend once you start doing this.
6. Get Real With Yourself
Whether we want to admit or not, all of us at one point or another have participated in, “The Comparison Game”.
When people compare themselves to someone else, they feel the need to catch up or surpass them.
Which causes them to buy that new car, own that classic designer bag, or going to that luxurious vacation resort, etc. All for the purpose of looking like they’re living a better life than the other person.
But would any of these things make us truly happy? Or are they making us more depressed?
It’s unfortunate that we live in a society that brainwashes us to think that the more materialistic things you have, the wealthier you are.
When we buy all these things, do we ever think about the consequences that it leaves behind?
Now that you’re on the right track to get out debt. You need to discipline yourself so that you don’t create any more debts.
Resist the desire to let impulse shopping take over your actions. Every time you feel the need to buy something, ask yourself, “Do I really need this?”
Making sacrifices is a must if you want to get out of debt and avoid creating more debts. Again, nobody said this was going to be easy. 😉
Being in debt is not the glamorous topic that you want to share with your friends or family. How you get out of debt will be completely up to you. Don’t be embarrassed to seek professional help if that is indeed what you need!
Getting out of debt requires hard work and countless sacrifices. This means that no amount of reading, discussing or learning about getting out of debt will actually get you out of debt. If getting out of debt means you have to live below your means and cut your expenses for a while, then do it.
The only person you are in control of is YOU.